The Advantages of Trading Bitcoin
Bitcoin and cryptocurrencies are taking the Fintech industry by storm as of late. The blockchain technology, where these digital currencies are created and their transactions recorded, is arguably one of the most influential technologies of the 21st century. And since investors are always keen on finding new ways to expand their portfolio, it was inevitable that crypto and Bitcoin trading would become the next big investment craze since the stock market.
What is a cryptocurrency
Cryptocurrencies are digital currencies that can be transferred via the blockchain which is a digital platform that anyone can access. The blockchain is a decentralized network because it is inherently secure. There is no need for a bank or a third-party overseer because each transaction is verified by the users themselves through what is referred to as mining. The miners are users who use dedicated computing hardware to round up transactions, validate them and put them in blocks which are then added together creating the Blockchain. For their valuable efforts, the miners are rewarded with a small amount of the digital currency.
If you wanted to buy some Bitcoin, you would have to create an online digital wallet which comes with an address (think of it as your account number) and a private key or password which gives you access to your Bitcoins and allows you to send and receive Bitcoin. If you forget or lose the key to your wallet, your Bitcoins are essentially gone and irretrievable. It’s also recommended that you move your Bitcoin away from the cloud storage wallet and instead create an offline wallet which is referred to as cold storage. Since online wallets are set-up through a third party which unlike the blockchain isn’t immune to hacking or bankruptcy – an offline wallet is a safer long-term solution. This can be done by generating a set of private keys which are then printed on a piece of paper for safekeeping or you can use a more sophisticated hardware wallet which is a dedicated device for storing cryptocurrencies.
It’s clear that getting into cryptocurrencies can seem quite daunting for a beginner. The market is very promising, however, especially if we consider the record highs Bitcoin has seen in the past few years. In 2017 it hit a record of $16,000 and even though now it’s trading at a comparatively low $3,400, many industry professionals are expecting more than 70% growth in the short future.
Trading Bitcoin is a completely different thing than buying and selling Bitcoin on an exchange to profit from jumps in price, however, the principle is pretty much the same. When trading Bitcoin through a brokerage, you can actually speculate and profit from future price movements without owning any Bitcoin or even a digital wallet. The brokerage takes care of all the grunt work, the buying and selling of the currencies which leaves you to just decide if the price is going to go up or down and when. If your (hopefully) educated guess is right, you stand to profit according to how many points the price of the cryptocurrency moved.
This presents great opportunities for aspiring investors and traders in the crypto space because, through a regulated brokerage, you get all the benefits of investing in a volatile market such as cryptocurrencies along with several other useful tools and services that are normally available only in forex and traditional stock exchanges.
Benefits for retail traders
The main advantages of Bitcoin trading are:
- Profit both in trending and declining markets
- Added security through regulation
- Technical and fundamental indicators
Leverage in Bitcoin trading is an incredibly powerful tool as it magnifies the amount of money you control in any given trade by using a very small percentage of your invested capital as collateral. You can think of leverage as a no-interest loan from your broker which can be used to trade with higher amounts in order to realize greater profits. If a trade goes bad, however, leverage can also prove to be detrimental to your trading so it’s crucial that you use it cautiously along with other risk management methods.
The other great advantage you can enjoy when trading Bitcoin is that you can turn a profit regardless if the market is moving up or seeing a downtrend. Since you don’t actually own any Bitcoin, you won’t find yourself losing money when its price goes down. Instead, you can short or sell Bitcoin and your broker will take care of the trade on your behalf and if your prediction is accurate and the price falls, you will see a profit. With how volatile cryptocurrencies are, being able to speculate on both ends of the spectrum at any given time has incredible profit potential and this is the main reason why trading Bitcoin is so popular.
One of the main concerns about crypto is that the industry is lacking regulation from a central authority and there are several reports of questionable exchanges performing less than legal activities which end up costing investors their coins. A regulated broker, however, is proven to provide a trusted service and is constantly supervised by third-party overseers which guarantee that traders and their investment are protected at all times.
Predicting price swings in the market might seem impossible at first but a closer look at the fundamentals can paint a clearer picture. That’s why Bitcoin investors keep an eye out for every piece of relevant news that could affect the market’s outlook on cryptocurrencies. Media and trader psychology is one of the most influential market moving indicators in crypto. One positive article with a bullish article on Bitcoin can lead to wild buying of the currency resulting in sudden spikes in price. It’s a simple matter of supply and demand.
Economic indicators are therefore a viable way to analyze the market, but numbers sometimes tend to speak for themselves and some traders swear by technical analysis and various indicators which can provide a signal as to where the market is heading. Going back through historical data and studying the past performance of a currency can reveal patterns which can repeat themselves in future as well. As such, technical analysis is based on finding a pattern in the chart in order to predict a favorable point of entry in the market.
Bitcoin trading is such an exciting market and the adoption rate of cryptocurrencies only seems to grow along with our understanding of technology and its various applications. Prospective investors should be cautious however as it is a highly volatile market promising great returns as well as great risk.